Year of the Ox is already looking like a step up for Hong Kong property market from the one just passed

Hong Kong’s economy and property market will firmly be on a slow, steady road to recovery by spring
There will be a great deal of wait-and-see in the first quarter, but it will not linger for long as things look up with vaccination plan in progress

Victoria Allan

Published: 12:05pm, 19 Jan 2021

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There will not be an overnight transformation but 2021 – The Year of the Ox – is already looking like a step up from the one just passed.

It is safe to say that most of us will be thrilled to see 2020 out the door. After a year that went from bad to worse and back again, most of us are hoping the next 12 months are better. And they will be. Hong Kong’s economy in general, and the property market in particular, are not heading for a miraculous rebound, but both will firmly be on a slow, steady road to recovery by spring.

So where are we coming from? Despite the pandemic, the past year in property was marked by ongoing end-user demand impacted by low supply (the government’s target of 20,850 units for 2020 totalled just 13,700 completed by October), and policy tweaks that relaxed lending rules and stamp duties on commercial property. Low interest rates and high market liquidity have kept the market stable, and despite an April trough, when all is said and done, prices fell off just 1 per cent in the mass market and 8 per cent on average in some sections of the high-end market for the year.

Looking ahead, some analysts believe upgrader demand makes the market look stronger than it actually is, and predict mass prices are going to fall another 5 per cent next year – as much as 10 per cent at the luxury end. These perspectives undervalue Hong Kong’s solid fundamentals, which are not going anywhere. There will be a great deal of wait-and-see in the first quarter, but it will not linger for long.

Nonetheless, there are key factors that will impact residential markets in 2021 – Covid-19’s status, the local economy and property supply, a low interest rate environment, and international and local policy.

05:09

What there is to know about the Covid-19 vaccines roll out in Hong Kong

The coronavirus fight is, of course, first and foremost on everyone’s mind, the single biggest influence on every element of our lives right now. With vaccination programmes already under way in the United Kingdom and the United States, and set for the Hong Kong special administrative region in February, the world released the collective breath it was holding. It is still going to be a while before any of us jet off on holiday, and flash outbreaks will continue, but in a sentiment-driven market like Hong Kong’s, it is the kind of news that has a positive effect.

Aside from Covid-19, Hong Kong’s economic health and housing supply will be among 2021’s chief movers and shakers. In December, Financial Secretary Paul Chan forecast a second-half economic rebound, but admitted US-China trade tensions and pandemic-related restrictions would keep unemployment at 6 per cent, which will keep the HK$15 million to HK$80 million sector cautious.

In the more affordable mass market, although 19,000 new units are scheduled for completion next year (and 80,000 slated through 2025), there is still a five-year lag in land policy manifesting in flats. The death of secondary supply will play a major part in keeping capital values high until this problem is addressed.

Coming in under the radar are the still historically low interest rates purchasers can embrace. As we approach two decades in a low-rate environment (they were under 1 per cent during the outbreak in 2003 of the Severe acute respiratory syndrome), investors are more willing than ever to tolerate low yields on their property investments, and end users sitting on cash earmarked for homes are willing to take the plunge because rates are likely to stay low.

The US Federal Reserve has threatened rate hikes for 10 straight years and that has yet to translate into real increases; financing remains under 3 per cent. With banks actively offering financing, we predict buyers are going to start acting in 2021.

Finally, international and local policy will rear their heads, and even with the relief offered by a Biden administration in Washington, relations between China and the US are going to remain strained. The difference is that the prospect of a proper statesman practising diplomacy, even as he must placate more than 70 million Trump supporters, will help boost sentiment. At home, do not expect policy in Hong Kong to change: the cooling measures implemented since 2012 have strengthened the market overall, and with prices barely coming off in a pandemic year they are going to stay in force. The only policy potentially on the horizon would be a welcome solution to making property accessible at the lower end of the market.

Hong Kong’s monetary authority eases commercial property mortgage rules for the first time since 2009

As people see a vaccine rolling out, the thinking is going to be that things are finally looking up. The streets are calm, travel bubbles are in the works and the stock market is active. For anyone in Hong Kong reflecting on 2020, they might come to realise it offered up some great opportunities, and although discounts were unlike the ones found during the Sars crisis, which was a very different point in the cycle, there were discounts from the highs of 2018.

It has been a hard slog, no doubt, but with supply tight and sentiment improving over the next two years – and as long as we keep washing our hands – in five years 2020 could be a tragic footnote.

Victoria Allan is founder and managing director of Habitat Property

This article appeared in the South China Morning Post print edition as: 2021 looks to be start of better times in HK

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